Trump concerns put US shale in South Korean spotlight
His anti-trade stance has flipped traditional thoughts about trade balances on their head
South Korea is looking at the energy sector to rebalance its trading relationship with the US and deflect President-elect Donald Trump’s protectionist rhetoric.
The sixth-largest exporter of goods to the US wants to reduce its trade surplus with the world’s top economy to avoid being named a currency manipulator. South Korea sees more US shale imports as a key to narrowing the trade gap and the government is looking at ways to boost spot energy purchases from the US.
South Korea’s aims underscore how Trump’s anti-trade stance has flipped traditional thoughts about trade balances on their head. South Korea’s trade surplus with the US was $23.4 billion (Dh85.9 billion) in 2016, up from $11.6 billion in 2011, according to the Korean Ministry of Trade, Industry and Energy. Trump, during the campaign trail, blamed a 2012 trade agreement with South Korea for the loss of about 100,000 US jobs. While South Korea is a net exporter to the world, shipping out Hyundai Sonatas, Samsung Galaxies and DVDs of Korean TV dramas, it is energy poor with crude oil and natural gas among its largest import goods by value.
That makes energy a good trade match with the US, which is leveraging shale companies’ success at fracking into becoming a major energy exporter. Congress in 2015 lifted a 40-year ban against most crude oil exports and companies are spending billions of dollars to turn the US Gulf Coast into one of the top three liquefied natural gas exporters in the world.
South Korea is monitoring whether there’s room for making additional spot purchases of US energy exports, a senior official at the trade ministry said this week. The government is sharing information with companies and plans to review the situation once the Trump administration is in place, he said.
SK E&S Co. Ltd. earlier this month bought South Korea’s first shipment of US shale LNG from Cheniere Energy Inc. Korea Gas Corp., the world’s biggest commercial buyer, this year is scheduled to begin importing 2.8 million tonnes a year of US LNG from Cheniere when it finishes a new production train. That much LNG at current Asian spot values is worth about $1.2 billion a year.
Purchases
GS Caltex bought 2 million barrels of the US Eagle Fordcrude for delivery in November and December last year. Other than condensate and Alaskan oil, it was South Korea’s first crude purchase from the US after Washington removed the ban on exports. South Korea imported 301,279 tonnes of crude from the US in 2016.
Because of higher shipping costs, importing US oil is profitable when benchmark West Texas Intermediate is at least $6 or $7 a barrel cheaper than the Middle East marker grade Dubai, said Kim Wookyung, a spokeswoman at SK Innovation Co., South Korea’s biggest refiner.
As of Wednesday, WTI for March was priced about 55 cents below Dubai, according to Bloomberg’s calculations based on PVM Oil Associates data.